Inflation pressure points to another interest rate hike: Analyst

Consumer inflation is expected to remain elevated above the Reserve Bank’s target bracket of 3% to 6%.

This, as the rolling blackouts and the weak rand/dollar exchange rate continue to push up inflation.

Food inflation has added nearly 15% as producers pass-on the costs of unreliable power supply and high fertilizer prices.

The high inflation environment, stemming mainly from food and fuel prices, has caused much pain to consumers as their disposable income dwarfs rapid rise of cost of living.

The Reserve Bank on the other hand has had to hike interest rates to try and curb inflation, adding to the pressures faced by indebted consumers.

Upside risks to inflation remain over the coming months.

These include electricity and other administered prices.

Food prices are expected to stay elevated because of the weak rand, as well as the effects of the rolling blackouts.

Chief economist at Econometrix, Azar Jammine says, “Food inflation rate has accelerated to nearly 15%, the primary reason for this is attributable to the effects of load shedding on food prices. As a result of load shedding, the food producers have been unable to produce as normal, they’ve also faced sharp increases of costs of fertilizer and have been passing those onto consumers and as well as the reduced supply leading to the shortage of food stuffs. If one looks at different industries in the food industry impacted in different ways, the net results have been an acceleration in food inflation and looking ahead as one expects we should expect a move to stage 7 or 8 of load shedding during the winter where people need electricity for heating purposes, it’s possible that food inflation will rise further.”

The rand value breached the R19 mark in recent weeks spelling bad news for inflation.

With the high inflation environment, the Reserve Bank will have to hike the repo rate once again, to try and bring inflation under control.

Jannie Rossouw is a visiting professor at Wits Business School.

“In my view we will see another hike also to contain inflation expectations, inflation expectations change as a result of the depreciation of the exchange rate of the rand. I must say for this depreciation of the rand, we can only blame our President Mr Ramaphosa who could not give a clear answer on the circumstances around the Lady R docking in our main navy place five months ago. As a minimum as a commander in chief of the Army he should make inquiries about that and clearly he didn’t, and that was a big shock to confidence. So with the weaker exchange rate inflation expectations will be higher, to contain inflation, it is necessary to raise interest rates. I must also add that the higher interest rates are good for those people who save, those people who earn interest on their savings and those people who live off the interest on their savings. So, yes, higher interest rates are negative for those people who borrow money but it is positive for people who save, with accumulated savings.”

Stats SA is expected to announce the April consumer inflation index this week, while the Reserve Bank will announce its decision on the repo rate later this week.